Published: 18/07/2024
As a landlord in South West London, you may ask what is a holding deposit, and wonder how a holding deposit works. In fact, two common questions our team at Ellisons often answer are:“Why is a holding deposit needed?“
“When is a holding deposit returned?”
To help, the Ellisons team has compiled an overview so you can gain an understanding of holding deposits for landlords.
Holding Deposits Explained
What are holding deposits and are they the same as a tenancy deposit?
Confusion sometimes arises when landlords mistake a holding deposit and a tenancy deposit as the same thing. This isn’t the case. A holding deposit (or holding fee) is money prospective tenants pay when they apply for a rental property and before the tenancy agreement is signed.A holding deposit secures the property while referencing takes place and is made before the prospective tenant becomes an actual tenant. Once the holding deposit is paid, there is a legal obligation to remove the rental property from the market. The Tenant Fees Act of 2019 was introduced by the government to make the private rental market easier for tenants. It achieved this by removing administrative charges and high initial expenses that would often overwhelm first-time renters, and among the reforms was the adjustment of the amount of holding deposit landlords can request from tenants. Legally, a holding deposit can only be equal to the maximum amount of one week of rent.
A tenancy deposit differs and is paid once referencing and other checks have been carried out, and before the tenant moves into the rental property. This can be a maximum of 5 weeks’ rent if the annual rent is under £50,000. It's six weeks’ rent if the annual rent is over that figure. A tenancy deposit must always be placed into one of the deposit protection schemes approved by the government within 30 days of its receipt. For example, Ellisons Estate Agents is part of the TDS (Tenancy Deposit Scheme). However, the difference is that 'holding deposits' are not required by law to be included in one of the deposit protection schemes.
Reference Checks And Holding Fees
Once a tenant has paid a holding deposit, the landlord carries out reference checks. When the tenant passes those checks, the next step is to sign the tenancy agreement and arrange a move-in date. Should the tenant fail the checks, the amount paid as a holding deposit can be useful in ensuring a landlord is not out of pocket, depending on the circumstances.Here we answer your common questions regarding holding deposits.
Why is a holding deposit needed?
A holding deposit is a way of acknowledging that a prospective tenant is seriously interested in committing to the rental property. It provides reassurance to the landlord and peace of mind to the prospective tenant. At Ellisons we must protect both landlords and tenants and believe in positive landlord-tenant relationships from the start. Our experienced property management team have over 30 years of experience in the local property market and are ARLA (The Association of Residential Letting Agents) trained and qualified. We follow strict referencing and identification processes to verify the legitimacy of all properties and transactions.Does a prospective tenant get their holding deposit back if there is an issue with referencing?
Failing the referencing process doesn't give a landlord the automatic right to withhold any money paid as a holding deposit, and a deposit should always be returned within 7 days. The same applies if a landlord decides not to proceed. However, if a prospective tenant has provided false or misleading information, this may be reviewed.When is a holding deposit returned?
When a holding deposit is paid by a prospective tenant, an agreement with the landlord must be reached within 15 days. If this deadline is not met and the tenant has done all they can to secure a tenancy, the landlord must refund the full holding deposit within 7 days. When everything goes smoothly with the tenant’s application, the tenant will receive the amount of their holding deposit back. This is usually in the form of a deduction from the first monthly rent payment.Are tenant fees and holding deposits the same thing?
No! Holding deposits aren’t fees that tenants are charged. Rather, they’re a safety measure for landlords and tenants. A ban on tenant fees since 2019 has caused some confusion about holding deposits. However, since tenants receive back the amount they pay as a holding deposit, it isn’t deemed to be a fee. Therefore, it’s entirely acceptable.Want to learn more about holding and tenancy deposits?
To find out more, please get in touch with the lettings and property management team at Ellisons on 020 8545 2185 or email propmanagement@ellisonsuk.comYou may also be interested to read: Investing In Buy To Let Property: A Guide For First Time Landlords